A practical & legal guide to performance management can help employers handle underperformance confidently while reducing the risk of disputes or claims.

Managing employee performance is a key part of running any business. Most employees perform well with the right support, but when concerns arise, knowing how to handle them fairly and consistently is essential.

For employers – particularly SMEs – performance management is not just about improving output. It is also about following a fair process, maintaining morale and protecting your business from legal risk.

A Practical & Legal Guide to Performance Management: Why It Matters

Performance issues can arise for many reasons – lack of training, personal circumstances, unclear expectations or changes in the business.

Handled well, performance management can improve employee productivity, support staff development, reduce workplace tension and avoid escalation into formal disputes.

Handled poorly, it can lead to grievances, disengagement or even claims of unfair dismissal

Setting Clear Expectations from the Start

Effective performance management begins long before any issues arise.

Employers should ensure that:

• Job roles and responsibilities are clearly defined
• Employees understand what is expected of them
• Objectives are realistic and measurable
• Regular feedback is provided

Clarity at the outset can prevent misunderstandings later on.

Informal Performance Management: The First Step

In many cases, performance concerns can be addressed informally.

This might involve:

• A one-to-one conversation
• Identifying specific areas for improvement
• Offering training or support
• Agreeing a plan with clear goals and timeframes

An informal approach can often resolve issues quickly without the need for formal procedures.

When to Move to a Formal Process

If performance does not improve, employers may need to follow a formal capability procedure.

This should be done carefully and in line with company policies and ACAS guidance.

A fair process typically includes:

• A formal meeting to discuss concerns
• Clear examples of underperformance
• An opportunity for the employee to respond
• A performance improvement plan (PIP)
• Regular review meetings

Employees should understand what is expected and what could happen if improvement is not achieved.

Documentation Is Key

One of the most important legal aspects of performance management is record-keeping.

Employers should keep clear records of all meetings and discussions, agreed targets and deadlines, the support offered and progress made.

Accurate, written documentation can be critical if decisions are later challenged.

Avoiding Common Legal Risks

Performance management must be handled fairly and consistently to reduce legal risk.

Employers should take care to avoid:

• Treating employees inconsistently
• Making assumptions without evidence
• Failing to follow internal procedures
• Overlooking potential underlying issues (e.g. health conditions)

It is also important to consider whether performance concerns could be linked to a disability or other protected characteristic, as this may require adjustments to avoid the additional risk of uncapped awards for discrimination claims. From January 2027, when unfair dismissal awards become uncapped, the risks attached to performance related dismissals become greater even without a discrimination element.

The Role of Reasonable Adjustments

If an employee is struggling due to a disability, employers may have a duty to make reasonable adjustments.

This could include:

• Adjusting workload or deadlines
• Providing additional support or training
• Offering flexible working arrangements
• Making changes to the working environment

Failing to consider this can lead to discrimination claims.

Managing Difficult Conversations

Performance discussions can feel uncomfortable, but avoiding them often makes matters worse.

When approaching these conversations, be clear and factual, focus on behaviour or outcomes, not personality, listen to the employee’s perspective and keep the tone professional and supportive.

Handled well, these conversations can build trust rather than damage it.

When Performance Does Not Improve

If, after a fair process, performance remains below the required standard, employers may need to consider further action.

This could include issuing formal warnings, extending review periods or ultimately, considering dismissal.

Any decision must be reasonable, proportionate and based on a fair process.

A Balanced Approach to Performance Management

A practical & legal guide to performance management is ultimately about balance – supporting employees while protecting the business.

Taking a structured, fair and consistent approach can help employers:

• Address issues early
• Maintain positive working relationships
• Reduce the risk of legal claims

If you are unsure how to manage a performance issue or implement a formal process, an employment law specialist can help you approach the situation confidently and compliantly.

FAQs

What is the difference between performance management and disciplinary action?

Performance management focuses on capability and improvement, while disciplinary action usually relates to misconduct.

 Do I need a formal process for underperformance?

Not always. Many issues can be resolved informally, but a formal process may be needed if improvement is not made.

 How long should a performance improvement plan last?

It depends on the role and issues involved, but it should allow reasonable time for improvement. What is reasonable will depend on the role and the issues at hand.

Can poor performance lead to a fair dismissal?

Yes, but only after a fair and reasonable process has been followed.